WASHINGTON-The main credit union lobby organizations joined the bankers to fight off a bill backed by the consumer groups that would set strict new limits on overdraft protection programs.
A CUNA representative, Rod Staatz, president of Maryland's State Employees CU, urged the House Financial Services Committee during hearings Oct. 30 to hold off on a bill that would require all consumers to "opt in" to overdraft programs and set new limits on the fees and the number of overdrafts that can be charged until the regulatory landscape clears. Staatz noted that the Federal Reserve is poised to issue its own new rules on overdraft protection and Congress is preparing to create a whole new agency to regulate overdraft and other consumer regulations.
CUNA and NAFCU joined the American Bankers Association and the Independent Community Bankers Association in urging lawmakers to go slow on the overdraft protection bill. They are concerned that new restrictions could eat into profitable revenues earned from overdraft programs, estimated to be more than $3 billion for credit unions, alone.
The growing efforts to re-regulate financial services-on mortgages, credit cards and card interchange fees, as well-has caused credit unions to boost their lobbying efforts considerably this year as they work to either block or limit bills. A study released the day of the hearing by the Center for Responsive Politics shows that credit unions increased their Washington lobbying expenditures by 51% to $6.6 million during the first nine months of this year.
At the hearing, credit unions and banks were pitted against representatives from Consumers Union, the Consumer Federation of America and even the Center for Responsible Lending, a consumer lobby funded by the leading community development credit union, Self-Help CU.
Eric Halperin, director of the Washington office of the Center for Responsible Lending, said a recent study his group conducted shows that banks and credit unions earned $23.7 billion from overdraft fees last year, most of it from lower-income consumers, seniors and others least able to afford the extra charges. Most worrisome, said the representative from the credit union-backed group, is that most overdraft fees are now being assessed on debit card or ATM transactions, and not on bounced checks. This means that most charges, say a first-time fee of $35, may exceed the amount of the overdraft by many times, according to Halperin.
The consumer groups were joined by North Carolina SECU President Jim Blaine, who told lawmakers he supports the efforts to require credit unions and banks to obtain "opt-in" permission from consumers before covering their overdrafts.
"I believe overdraft protection service, such as courtesy pay, should be banned, not because I don't think it provides a good service, but because the good is far exceeded by the harm," said Blaine, who has been known to oppose the organized credit union lobby on major legislation. "It's likely the consumer has no idea about this product and does not understand it."
Blaine's position was countered by Dennis Dollar, the former chairman of NCUA and now an industry consultant, including for Strunk & Associates, a leading provider of overdraft programs for credit unions. Dollar acknowledged that some overdraft programs have been subject to abuse by lenders and endorsed efforts by Congress to rein in abuses, but he said that credit unions and banks forced to reduce fees from overdraft programs will have to make up the lost revenue elsewhere, such as in lower rates on savings or higher rates on loans.
The representatives were testifying about a bill introduced by Rep. Carolyn Maloney, the New York Democrat who also authored the bill to tighten regulations on credit cards. Maloney's bill would require opt-in for all overdraft programs; bring overdraft programs under the Truth In Lending Act disclosures; require that ATMs notify consumers if they don't have enough money to cover a withdrawal; require that the ATM notify the consumer there may be an overdraft fee charged if there are insufficient funds; allow no more than one overdraft fee a month and no more than six a year and cap fees at what is "reasonable" to cover the costs of the program.
